Education Week - April 2, 2014 - 16

INDUSTRY & INNOVATION > Tracking business trends and emerging models in K-12
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Ed-Tech Startups Navigate
The Hard Market Realities
For Sustaining Success
By Michelle R. Davis
Launching an ed-tech startup is a
daunting task, full of fears of failure,
worries about money, and questions
about the K-12 marketplace. The
bigger challenge, though, can be sustaining
the business once it gets off
the ground.
That is when most education startups
take a nosedive, whether because
of poor planning, unfriendly market
forces, simple bad luck, or other factors,
according to market observers.
Adam Geller and Michele McKe-
one are working their way through
that phase right now, as they strive
to move forward and develop their
separate ed-tech businesses. They're
brainstorming about how to get the
dollars they need to continue improving
their products and services, identifying
financial models to sustain their
businesses, and hiring new employees.
All the while, they sometimes
wonder how their startups will affect
their own career paths.
Mr. Geller, a former science
teacher and co-founder of Edthena,
a secure video-sharing platform
designed to provide feedback for
teachers and teachers-in-training,
and Ms. McKeone, a special education
teacher who created a digital
literacy program for students with
autism, called Autism Expressed,
are navigating the educational technology
startup arena and learning
important lessons along the way.
Education Week, in partnership with
the University of Pennsylvania Graduate
School of Education, is following
these two startups to provide a closer
look at the ed-tech industry, which has
become a popular investment area
and has spawned numerous products
that educators use or are considering
for use in their schools and classrooms.
Both startups participated in
the university's education business
plan competition, which provides
financial awards and mentoring. (See
Education Week, Oct. 16, 2013.)
"Entrepreneurs get to the spot
where they have a vision, some passion,
a product or service, and they
get a handful of customers," said Joseph
Olchefske, the board president
of the Education Industry Association,
a trade group based in Vienna,
Va. "They've proven they have a reason
to exist. But then how do they
build the business and make it a
thriving concern?"
Though the buzz and hype around
the ed-tech marketplace continues
to grow, the reality is that most edtech
startups are likely to fail, said
Barbara "Bobbi" Kurshan, the executive
director of academic innovation
and a senior fellow at the University
of Pennsylvania Graduate
School of Education. Only one in 10
startups that go through incubators
or accelerators, which provide support
for these new companies, will
be able to raise additional rounds of
funding, she said, adding that those
statistics generally carry over to the
ed-tech startup world.
Edthena co-founder Adam Geller, above, demonstrates his product to
educators during the American Association of Colleges for Teacher
Education annual meeting in Indianapolis last month. Autism Expressed
Founder Michele McKeone, right, conducts a training session last month
at a school for students and adults with disabilities in Haddonfield, N.J.
Edthena, based in San Francisco,
and Autism Expressed, based in
Philadelphia, have both reached the
point where they have to make a
leap to scale up, she said.
They need employees to make
sales pitches and oversee contracts,
they must develop a business infrastructure,
and Ms. McKeone and Mr.
Geller need to focus on making the
product-not their own journey-
the story, Ms. Kurshan said.
Some factors are in their favor: Both
companies have paying customers,
and both have had either investors
or the possibility of outside funding.
But it remains to be seen whether the
companies can take their products forward
in the K-12 marketplace, which
has a distinctive set of hurdles.
The Sales Challenge
Mr. Geller is trying to overcome
those barriers. After launching Edthena
in 2011, he's aiming to grow
the company. In October, he hired his
first salesperson-paid through a salary,
commission, and stock options-
to pursue new customers.
The sales strategy relies, in part,
on Internet-based demonstrations,
Mr. Geller said.
"We're trying to sell the fact that
we can make video feedback and observation
online easy, so it's a natural
fit to have someone try it out on
their computer," he said.
Mr. Geller has also made inroads
with the Washington-based American
Association of Colleges for
Teacher Education, which accepted
Edthena as an affiliate member,
since the company provides a service
to full members.
It's a designation that gives Ed-
thena entree to the 876 schools and
colleges of education that are members,
said Christina A. Jackson, the
director of public relations and fund
development. "Our members get a
lot of solicitation," she said. "They are
very wary about who they partner
with."
A new teacher-certification initia-
tive is also emerging as a boon for
Edthena, Mr. Geller said. The performance-based
licensing assessment
for new teachers, known as EdTPA, is
being adopted by schools of education
and state across the country.
The certification steers participants
directly toward video for both
feedback and to submit proof of
their skills, Mr. Geller said.
Even so, it's been a challenge to get
the Edthena product into teacher programs,
particularly in the middle of
an academic year, he said.
But Mr. Geller discovered people
were willing to experiment with
small, pilot programs because the
difficulties of incorporating video
feedback effectively into teachertraining
programs are significant.
"People are willing try things in
K12 Inc. Designs
'Fuel Education'
Brand for Schools
CONTINUED FROM PAGE 1
ness-under the new name.
Fuel Education will operate as a
separate legal entity owned by K12,
and house several different "personalized
learning" platforms, as well as
teacher professional development,
consulting, and Web-based courses.
In making that change, K12 is fol-
lowing a long tradition of rebranding
by companies across different markets-in
some cases after facing criticism,
in others because they wanted
to change their public faces to reflect
growth or new products and services.
At the same time, the dynamics
can be somewhat different in the
education market, where companies
typically have to navigate strict procurement
processes before they can
reach the end-users of their products:
teachers and students.
A savvy rebranding can help a
company overhaul its image and put
it in a stronger position to reach new
audiences, while a misstep can undermine,
confuse, or alienate customers
and consequently weaken its standing
in the market.
Gregg Levin, the general man-
ager of Fuel Education, said in an
interview that K12 Inc. officials had
been planning for years to rebrand
the products focused on personalized
learning under one name, to make it
easier to sell them in schools. Recent
criticism of the company and its performance,
he insisted, had nothing to
do with the name change.
Previously, "we were a collection of
a variety of brands," said Mr. Levin,
who until recently was a vice president
of K12. "It made it challenging
for our internal folks and for the marketplace
to understand what we did;
... it was confusing to the buyer."
Critics of the company will likely
"draw their own conclusions about
what we've done," he said, but the
reality is that "this has been building
for some time."
Recent Struggles
K12, which reported revenues of
$848 million in fiscal 2013, has long
16 | EDUCATION WEEK | April 2, 2014 | www.edweek.org
been a focal point in the debate over
the role of for-profit companies in education,
particularly as it relates to the
management of schools.
The company and its backers argue
that it fills an important, often unmet
need by providing flexible and customized
online services to students
who struggle or otherwise aren't comfortable
in brick-and-mortar schools.
K12's detractors point to its stu-
dents' lackluster showing on state
tests, and to complaints about its
business practices as reasons to be
skeptical of its role. (See Education
Week, Oct. 23, 2013.)
The company has weathered a
wave of bad publicity recently. Last
year it settled a federal lawsuit by
investors who had claimed they were
misled by the company about its students'
academic performance and its
business practices, though K12 denied
the allegations put forward. In
September, a prominent hedge fund
investor, Whitney R. Tilson, offered
a broad critique of K12, in which he
said its stock was overvalued.
And in October, company officials
reported disappointing enrollment
and financial numbers, soon followed
by a big drop in K12's stock
price, and it has remained relatively
stable since then.
In announcing the launch of Fuel
Education in February, K12 officials
said that some of the products and
services under the new brand had
been part of a business line within
the company since 2009, though others
had been in existence well before
then. Those offerings were expanding,
Mr. Levin said, and some of that
growth was based on K12's acquisition
of other companies, such as its
2010 pickup of KC Distance Learning,
a Portland, Ore.-based company
where he used to work.
But in trying to sell so many products
to school districts under a scattering
of different names, the company
ended up "tripping over the
brand references," Mr. Levin said,
and K12 officials decided a rebranding
was in order.
That process involved K12's mar-
keting, sales, and legal departments,
senior executives, and outsiders, including
district officials. Ultimately,
up to 75 people were involved, said
Bruce Lovett, the vice president of
marketing for Fuel Education. K12
officials probably considered 75 to 100
different names, he said, before whit-
tling it down to about 10 finalists, and
settling on Fuel Education.
While it's reasonable to assume
that recent public scrutiny may have
influenced K12 Inc.'s decision to create
the Fuel Education brand, criticism
of the company is hardly new,
said Trace A. Urdan, a senior analyst
at Wells Fargo Securities in San
Francisco. Other, bigger factors more
likely drove the change, he said-one
of which is the potential growth in the
area of digital content, separate from
K12's school management business,
Mr. Urdan said.
At the same time, company officials
recognize that the digital-content
landscape is crowded and competitive,
and that district officials "just
don't have the time or bandwidth
to consider every solution coming at
them," Mr. Urban said. Creating a
clearer brand could help, he said.
Online curriculum and instructional
services are "a part of the market
that everybody believes is growing,"
Mr. Urban said, and given K12's
knowledge of the landscape, "they really
ought to be good at this. ... There's
some pressure on this [part of their]
business to perform."
Organizations in education and
Aaron P. Bernstein for Education Week
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